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Profiting from Technological Capabilities: Technology Commercialization Strategy in a Dynamic Context

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  • Simon Wakeman

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    (ESMT European School of Management and Technology)

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    Abstract

    This paper analyzes the technology commercialization strategy of an innovating firm when the incumbent firms possess specialized commercialization capabilities. The predominant framework says that if the innovation is protected by a tight appropriability regime the optimal strategy is to license the innovation to an incumbent firm. Using a game-theoretic model of the technology commercialization process, this paper shows that if the innovating firm has specialized technological capabilities and the ability to learn from its experience in the commercialization process, its optimal strategy may-under certain conditions-be to commercialize alone or to pursue a hybrid whereby it licenses the innovation but retains the rights to participate in the commercialization process. The paper then uses the conditions derived from the model to explain the pattern of technology commercialization arrangements pursued by biotech firms attempting to commercialize 1590 identifiable products in the pharmaceutical industry between 1978 and 2008. The results show that a firm is significantly more likely to use the hybrid strategy when there are more firms competing to license the innovation, when there is a higher probability of commercializing a subsequent product in the same product field in future, and when it is in a stronger financial position.

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    File URL: http://static.esmt.org/publications/workingpapers/ESMT-08-008_R2.pdf
    File Function: Revised version, 2010
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    Bibliographic Info

    Paper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-08-008 (R2).

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    Length: 52 pages
    Date of creation: 24 Oct 2008
    Date of revision: 08 Jul 2009
    Handle: RePEc:esm:wpaper:esmt-08-008

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    Related research

    Keywords: technology commercialization; biotech; applied game theory; biotechnology; capabilites; innovation; entrepreneurship;

    This paper has been announced in the following NEP Reports:

    References

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    1. Gans, Joshua S. & Stern, Scott, 2003. "The product market and the market for "ideas": commercialization strategies for technology entrepreneurs," Research Policy, Elsevier, vol. 32(2), pages 333-350, February.
    2. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
    3. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
    4. Robert M. Grant & Charles Baden-Fuller, 2004. "A Knowledge Accessing Theory of Strategic Alliances," Journal of Management Studies, Wiley Blackwell, vol. 41(1), pages 61-84, 01.
    5. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Van de Ven, Wynand P. M. M. & Van Praag, Bernard M. S., 1981. "The demand for deductibles in private health insurance : A probit model with sample selection," Journal of Econometrics, Elsevier, vol. 17(2), pages 229-252, November.
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    8. Jacobides, Michael G. & Knudsen, Thorbjorn & Augier, Mie, 2006. "Benefiting from innovation: Value creation, value appropriation and the role of industry architectures," Research Policy, Elsevier, vol. 35(8), pages 1200-1221, October.
    9. Teece, David J., 1993. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 22(2), pages 112-113, April.
    10. Pisano, Gary P, 1989. "Using Equity Participation to Support Exchange: Evidence from the Biotechnology Industry," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 109-26, Spring.
    11. Ashish Arora & Robert P. Merges, 2004. "Specialized supply firms, property rights and firm boundaries," Industrial and Corporate Change, Oxford University Press, vol. 13(3), pages 451-475, June.
    12. Lerner, Josh & Shane, Hilary & Tsai, Alexander, 2003. "Do equity financing cycles matter? evidence from biotechnology alliances," Journal of Financial Economics, Elsevier, vol. 67(3), pages 411-446, March.
    13. Higgins, Matthew J., 2007. "The allocation of control rights in pharmaceutical alliances," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 58-75, March.
    14. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
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